India central bank says will defend ailing rupee

India's central bank said on Saturday it would act to prevent a "downward spiral of the rupee" which has been hit by fears about the global economy.The rupee has been stumbling to record lows against the dollar as foreign investors abandon Indian and other emerging market currencies in search of safe havens.It plunged to a record low of 52.73 against the dollar last month on fears about the eurozone debt crisis and the world economy as well as falling Indian shares which are faring the worst among their regional peers.

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I's hard not to laugh at the irony of recent central bank currency actions.
After complaining for years about the strength of the Real, the Brazilian central bank stepped up intervention actions hoping to stop a plunge in the currency.
Turkey now attempts to attract capital after taking measures for the past four years to stop the flow of money into the country.
In India, the central bank seeks to stop a plunge in the Rupee which is at a record low of record low 58.95 to the dollar.

India's finance minister P. Chidambaram met with top bankers Saturday to discuss ways to boost the weak rupee and bring in more foreign capital to bridge a trade gap that has put pressure on the currency. Chidambaram was accompanied by top officials at the meeting in India's financial hub of Mumbai with representatives of leading private and public sector banks.

India on Tuesday named a former International Monetary Fund chief economist as its new central bank governor as it grapples with a plunging currency and the slowest growth in a decade. Raghuram Rajan will head the Reserve Bank of India for a three-year term, replacing incumbent D. Subbarao, who retires next month, the finance ministry said.

The International Monetary Fund says the probability of the world economy falling into a deflation trap may now be as high as 20%.
It is remarkable that the G2 monetary superpowers – the U.S. and China – should both be tightening into this risk, though perhaps they are already damned either way given the level of asset speculation.

It’s hard to be optimistic about India right now. Asia’s third-largest economy is growing at the slowest pace in a decade, the trade gap is widening, the rupee is plunging and the government’s cost of borrowing is soaring as confidence evaporates and investors flee.

Short-term borrowing rates in China have soared to record highs as credit seizes up, prompting fears that the country’s liquidity squeeze may be spinning out of control. The Shibor overnight lending rate in Shanghai spiked violently to 29pc, with wild moves in seven-day and one-month money. The central bank refused to intervene to calm markets, apparently determined to purge excess from the credit system.